Asian stocks stabilize after selloff; Fed meeting watched

Asian equity markets stabilized on Tuesday following two straight sessions of sharp losses but caution prevailed ahead of a Federal Reserve meeting.

Emerging market currencies and stocks saw heavy selling abate as the U.S. central bank starts a two-day policy meeting later in the day, chairman Ben Bernanke's final meeting before Janet Yellen takes on the role. Most analysts expect another $10 billion reduction in its monthly bond-purchase program.

"While it makes sense to be cautious about emerging market shares generally, a re-run of the 1997- 98 Asian crisis is unlikely and emerging markets are unlikely to pose a major threat to global economic recovery," wrote Shane Oliver, head of investment strategy and chief economist at AMP Capital, in a note.

In the currency space, the Indonesian rupiah hovered near Monday's two-week low while the , and strengthened. The rebounded nearly 1 percent as markets anticipate a rate hike when the central bank announces the outcome of its emergency policy meeting around 8pm SIN/HK.

Nikkei slips 0.2%

Japan's benchmark index bounced between gains and losses in choppy trade but still managed to move off Monday's two-month low as investors took relief from a weaker currency.

The yen last traded at 102.7 per dollar, well off the previous day's seven-week high of 101.7, boosting blue-chip exporters. Index heavyweight Fast Retailing rose over 1 percent while blue-chip exporters Panasonicand Komatsu also added 1 percent each.

Mainland shares rebounded following Monday's 1 percent decline after the People's Bank of China (PBOC) injected funds into interbank markets, soothing fears over a new liquidity crunch. On Monday, reports that the PBOC halted bank cash transfers ahead of the upcoming Lunar New Years holiday sparked fears of a nation-wide cash shortage.

Shanxi Coal Industry surged 25 percent in its stock market debut, the biggest mainland listing since the initial public offering market was re-opened last month.

Australia's benchmark index closed at a one-and-a-half-month low as it played catch-up with the region following Monday's holiday. Sentiment was unable to get a boost even after the National Australia Bank's business confidence survey rose to a two-and-a-half-year high, which sent the Australian dollar closer to $0.88 U.S. cents.

Gold miners were among the top losers as gold prices were little changed after Monda's 1 percent fall. Kingsgate fell 5 percent while Alacer Gold lost 4.6 percent.